Jicarilla Apache Tribe v. Supron Energy Corp., s. 81-1680

• Decision Date: 24 February 1984
• Docket Number: 81-1860,Nos. 81-1680,81-1871,s. 81-1680
• Citation: 728 F.2d 1555
• Parties: 1984-1 Trade Cases 65,868 JICARILLA APACHE TRIBE, Plaintiff, Appellant, Cross-Appellee, v. SUPRON ENERGY CORPORATION, Southland Royalty Company, James G. Watt, Secretary of the Interior, Gas Company of New Mexico, Defendants, Appellees, Cross-Appellants, Exxon Corporation, Defendant, Cross-Claimant, Appellee, Cross-Appellant, State of New Mexico, Applicant in Intervention and Appellant in 81-1680. to 81-1874 and 81-1939.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1555

728 F.2d 1555

1984-1 Trade Cases 65,868

JICARILLA APACHE TRIBE, Plaintiff, Appellant, Cross-Appellee, v. SUPRON ENERGY CORPORATION, Southland Royalty Company, James

G. Watt, Secretary of the Interior, Gas Company of

New Mexico, Defendants, Appellees,

Cross-Appellants,

Exxon Corporation, Defendant, Cross-Claimant, Appellee,

Cross-Appellant,

State of New Mexico, Applicant in Intervention and Appellant

in 81-1680.

Nos. 81-1680, 81-1860, 81-1871 to 81-1874 and 81-1939.

United States Court of Appeals, Tenth Circuit.

Feb. 24, 1984.

Rehearing Granted March 30, 1984.

Robert J. Nordhaus and B. Reid Haltom of Nordhaus, Haltom & Taylor, Albuquerque Bruce D. Black of Campbell, Byrd & Black, P.A., Santa Fe, N.M. (Kemp W. Gorthey, Santa Fe, N.M., with him on the brief), for defendant, appellee, cross-appellant Supron Energy Corp.

N.M., for plaintiff, appellant, cross-appellee Jicarilla Apache Tribe.

Peter J. Adang and Susan Stockstill Julius of Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, N.M. (John R. Cooney, Albuquerque, N.M., with them on the brief), for defendant, appellee, cross-appellant Southland Royalty Co.

Christopher Harris, Atty., Dept. of Justice, Washington, D.C. (Carol E. Dinkins, Asst. Atty. Gen., Anthony C. Liotta, Deputy Asst. Atty. Gen., Land and Natural Resources Div., Washington, D.C., William L. Lutz, U.S. Atty., Raymond Hamilton, Asst. U.S. Atty., Albuquerque, N.M., and Edward J. Shawaker, Atty., Dept. of Justice, Washington, D.C., with him on the brief, William R. Murray, Jr., Dept. of the Interior, Washington, D.C., of counsel), for defendant, appellee, cross-appellant James G. Watt, Secretary of the Interior.

Gary R. Kilpatric of Montgomery & Andrews, P.A., Santa Fe, N.M. (Edward F. Mitchell and Mark F. Sheridan, Santa Fe, N.M., with him on the brief), for defendant, appellee, cross-appellant Gas Co. of New Mexico.

J. Douglas Foster of Hinkle, Cox, Eaton, Coffield & Hensley, Roswell, N.M. (Harold L. Hensley, Jr., Roswell, N.M., with him on the brief), for defendant, cross-claimant, appellee, cross-appellant Exxon Corp.

Thomas L. Dunigan, Asst. Atty. Gen., State of N.M., Santa Fe, N.M. (Jeff Bingaman, Atty. Gen., and Bill Primm, Asst. Atty. Gen., Santa Fe, N.M., with him on the brief), for State of N.M., applicant in intervention and appellant in 81-1680.

Kenneth J. Guido, Jr., Reid Peyton Chambers, Harry R. Sachse, Lloyd B. Miller, Kevin A. Griffin and Loftus E. Becker, Jr. of Sonosky, Chambers, Sachse & Guido, Washington, D.C., filed a brief on behalf of amici curiae Shoshone and Arapahoe Indian Tribes.

Before SETH, Chief Judge, McWILLIAMS and SEYMOUR, Circuit Judges.

SETH, Chief Judge.

These are consolidated actions and appeals wherein the plaintiff asserts a series of claims arising from oil and gas leases executed 25 or 30 years ago. There are several separate issues raised on appeal concerning computation of royalty, development and antitrust claims. The gas production was from wells located on the Jicarilla Reservation and was sold and consumed in New Mexico.

Issues Relating to Value of Gas

The trial court, 479 F.Supp. 536, held for all practical purposes that the defendants should have paid royalty computed on a "value" which was derived from the total net amount realized by the Lybrook processing plant for all products it developed from the gas it received from Southern Union which in turn had been purchased from and at the leases of the defendants on the Jicarilla Indian lands.

The court required that there be a "dual accounting" by all lessees which meant that there be determined both the price received by the lessees for wet gas at the wellhead where title passed, but adjusted for btu content; and secondly, that there be ascertained the value of the several products derived from the gas stream, and sold by the Lybrook plant operator/owner. This product figure was to be a net figure or "net realization." The trial court held that the royalty from all leases concerned should be computed on the larger of the two figures. The court thus mandated that the "value" based on plant product values (or net realization) be determined, and be used as an alternate whether or not the lessee paying the royalty had any interest in the processing plant and whether or not the lessee received any added compensation for the products developed by the plant. This blanket requirement was contrary to the position taken by the Secretary through the years. The requirement of "dual accounting" required of all lessees by the trial court The leases were executed in the early 1950's and the regulations then in effect were not changed since that time in any respect material to this problem up to the time in 1979 when the trial court entered orders directed to dual accounting. From 1950 to 1979 without exception, and without variation, the Secretary and the USGS had construed the lease provisions and the regulations to require dual accounting not by all lessees, but only in instances where the lessee owned the processing plant (or received added money for its products).

is one of the several basic issues raised on this appeal. It has a facet which involves the Secretary of Interior as the trial court also held that this dual accounting should have been required by the Secretary from the outset and since it was not done there was thereby a breach of fiduciary duty.

The trial court's holding was thus contrary to a long uniform administrative construction and application of the regulations and the lease provisions. The trial court did not build on any basis in the administration actions, but instead developed a wholly new interpretation. It made no finding that the Secretary or the USGS had acted through the years with any abuse of discretion or in an arbitrary and capricious manner.

The record shows that Supron was the only defendant which at any material time had an interest in the Lybrook plant. This interest was recognized at the time it existed by the USGS in its construction of the lease and regulations. Thus royalty requirements and reports by it were based on product value. This is an example of the consistent application of administrative construction. Since no other defendants had such an interest no such requirement was placed on them until the trial court sought to apply product values to all lessees although the plant was operated/owned by strangers whose operations and costs were not before the court and no reason was advanced as to why they would be made available to the defendants. The plant also processed gas from the general area thus from leases not here concerned. It is located outside of and about 20 miles west of the reservation boundary.

Lease Provisions

The lease provision in paragraph 3(c) [in Southland leases] provides that the royalty at 16 2/3% be computed on:

"the value or amount of all oil, gas, and/or natural gasoline, and/or all other hydrocarbon substances produced and saved from the land leased herein ...."

The lease form [Southland] provides that the Secretary has discretion to ascertain "value" for the computation. Thus paragraph 3(c) provides also that:

"During the period of supervision, 'value' for the purposes hereof may, in the discretion of the Secretary, be calculated on the basis of the highest price paid or offered (whether calculated on the basis of short or actual volume) at the time of production for the major portion of the oil of the same gravity, and gas, and/or natural gasoline, and/or all other hydrocarbon substances produced and sold from the field where the leased lands are situated, and the actual volume of the marketable product less the content of foreign substances as determined by the oil and gas supervisor. The actual amount realized by the lessee from the sale of said products may, in the discretion of the Secretary, be deemed mere evidence of or conclusive evidence of such value. When paid in value, such royalties shall be due and payable monthly on the last day of the calendar month following the calendar month in which produced; when royalty on oil produced is paid in kind, such royalty oil shall be delivered in tanks provided by the lessee on the premises where produced ...."

It appears that the royalty provisions are directed to production and sale at the field thus "produced and sold from the field." The due date for royalty payments is related to the month "in which produced" thus produced from the ground. When royalty oil is paid in kind it is to be delivered on the "premises."

The phrase "[t]he actual amount realized by the lessee from the sale of said products" referred back to oil, gas, natural gasoline, and "all other hydrocarbon substances produced The lease makes specific reference to the value of products of gas for royalty purposes to allow for the cost of manufacture as one choice with the "value" of gas as the other. Thus

                and sold from the field."    This portion is clearly limited by the first few words--"[t]he actual amount realized by the lessee."    The "actual amount realized" can apply under the Secretary's construction to a lessee who realizes amounts from products sold or from his extraction plant but to those situations only
                

"It is understood that in determining the value for royalty purposes of products, such as natural gasoline, that are derived from treatment of gas, a reasonable allowance for the cost of manufacture shall be made, such allowance to be two-thirds of the value of the marketable product unless otherwise determined by the Secretary of the Interior on application of the lessee or on his own initiative, and that royalty will be computed on the value of gas or casinghead gas, or on the products thereof (such as residue gas, natural gasoline, propane, butane, etc.), whichever is the greater."

This provision gives the typical gas value versus a rough net "value" of the product. This lease provision refers to the determination of the "value for royalty purposes of...